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Paris Wheat Surging Above Chicago’s on Africa: Freight Markets

Crop Surge Drives U.S. Export Boom as Obama Channels Kansas
The boom may continue through 2011, with wheat predicted to average $7.28 a bushel and corn $5.83, as much as 98 percent above the 10-year average. Photographer: Daniel Acker/Bloomberg

French wheat costs are near their highest in three years compared with U.S. grain and the premium is likely to rise as record food prices stoke demand from governments in North Africa seeking to end growing protests.

Importers are paying 20 percent more for a metric ton of wheat on the Paris NYSE Euronext bourse than on the Chicago Board of Trade because they need cargoes now, said Gautier Le Molgat, a consultant at Paris-based Agritel, which advises about 2,000 farms on crop sales. Shipments at Rouen, France’s main grains terminal, are at a two-month high, with Algeria, Egypt and Morocco among the destinations, port data show.

“Algeria, which is one of the biggest wheat importers in the world, can’t jeopardize the food security of its population,” said Alexandre Marie, a Bourges, France-based wheat analyst at Offre et Demande Agricole, which advises more than 5,000 farms on crop sales. “The geographical position influences things when there’s a quick need for stocks.”

Protests have spread across North Africa and the Middle East in the last month, driving Tunisia’s President Zine El Abidine Ben Ali into exile after 23 years in power and Egyptian President Hosni Mubarak to pledge an end to his three-decade-long rule by September. Riots erupted in part because of food prices the United Nations says reached a record last month.

While the French premium is about three times the 10-year average, it may keep rising until farmers start harvesting in July, said Luke Chandler, head of agricultural research at Rabobank in London. The premium exceeded 21 percent in November and again last week. It was previously at these levels in September 2007, according to data compiled by Bloomberg. The two prices only evened out about five months later.

Trading Window

“The importing countries have advanced their window for wheat trading,” said Agritel’s Le Molgat. “Normally they’re not this active in January. They are anticipating future needs, and there is the idea of quality and security of supply.”

Stockpiles of French wheat available for shipping may start to run out as early as next month, according to FranceAgriMer, the government crops agency. While that won’t create shortages for French buyers with long-term supply contracts, it will probably mean higher prices for importers.

France, the world’s second-biggest wheat exporter after the U.S., will ship a record 12.1 million tons outside the European Union in the 12 months ending in June, FranceAgriMer said today, increasing its estimate.

Milling-wheat prices may rise to 300 euros ($410) a ton by April, about 9 percent more than now, maintaining or even widening the premium over Chicago wheat, according to Cedric Weber, an analyst at Offre et Demande Agricole.

‘Forced to Buy’

“The Maghreb countries thought they had enough stocks,” said Weber, referring to Morocco, Algeria and Tunisia. “They saw prices rise and waited, thinking it would come down. Now they’re finding themselves forced to buy.”

While that demand may support freight rates, it’s not enough to eliminate a glut of ships. Rates for handysizes, a class of vessel used at Rouen, fell 11 percent to $9,422 a day last week, data from the London-based Baltic Exchange show.

Cereal prices started surging in June as Russia, formerly the second-biggest wheat exporter, had its worst drought in at least a half century, prompting the government to impose an export ban in August. Ukraine, previously the largest barley shipper, set quotas on overseas sales in October.

China, the world’s largest wheat producer and consumer, is facing severe drought in the main region growing the winter crop, the UN’s Food and Agriculture Organization reported yesterday, adding to concern about grain supply.

Loadings Triple

Rouen, on the Seine River downstream of Paris and the port of delivery for the NYSE Euronext milling-wheat contract, loaded more than 250,000 tons of wheat onto ships in the last week of September, more than triple the amount six weeks earlier. The increase reflected orders made when Russia’s export ban started.

Loadings almost tripled again two weeks ago, boosted by sales to Morocco. Cargoes to the North African nation reached 82,400 tons in the week ended Feb. 2, the most since November, port data show.

Shipments to Algeria, the biggest buyer of French wheat, added another 28,940 tons, the most in a month. The nation bought 2 million tons over 20 days in January, equal to four or five months of demand, according to Roger Janson, head of European grain and oilseed trading at Cargill Inc.

The premium for French wheat will eventually drive buyers to U.S. and Argentine supplies, said Francois Gatel, head of France Exports Cereales, the cereals-export lobby with offices in Egypt, Morocco and China.

‘No Longer Competitive’

“European wheat is really no longer competitive at all, probably because all of it has been sold,” said Emmanuel Jayet, head of agricultural-commodity research at Societe Generale SA in London, who in June correctly anticipated a jump in grain prices in the second half of last year. “In the U.S., there’s still quite a bit available.”

While French Agriculture Minister Bruno Le Maire has ruled out restrictions on exports, stockpiles are dwindling. The country’s soft-wheat stocks at the end of June will probably have fallen to 2.21 million tons, compared with 3.42 million tons a year earlier, according to the crops office.

“We have to reduce the pace of exports,” said Weber of Offre et Demande. “If not, there won’t be enough left in France. The only way to regulate the exports is for European wheat to rise so much that it’s no longer competitive.”

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